As required under Section 804 of the Energy Independence and Security Act of 2007 (Pub. L. 110-140), this report reviews the supply implications of planned refinery outages for December 2008 through March 2009, which covers the winter period when demand for distillate fuels (diesel and heating oil) is high. As a result, emphasis in this report is on distillate rather than gasoline. Refinery outages are the result of planned maintenance and unplanned outages. Maintenance is usually scheduled during the times when demand is lowest - in the first quarter and again in the fall. Unplanned outages, which occur for many reasons including mechanical failures, fires, and flooding, can occur at any time.

Distillate production is mainly affected by outages of a refinery's crude distillation unit, while gasoline production is more strongly correlated with fluid catalytic cracking (FCC) unit outages. While other refinery units can also impact distillate and gasoline production, they don't have as large an impact as the outages from crude distillation or FCC units, so other units are not covered in this report.

Market conditions going into the winter months are mixed. Crude prices have dropped considerably, bringing both gasoline and distillate prices down as well. Demand for gasoline and distillate fuels has been falling in 2008 compared with 2007, but distillate demand in PADD 1 (East Coast), which is where most U.S. heating oil demand is concentrated, may by driven up by colder weather expected in the first quarter of 2009. In addition, inventories of both gasoline and heating oil are low for this time of year. This is not as critical for gasoline, since demand falls off over the winter, but distillate inventories are used to help meet peak winter heating demand during December through February.

Crude distillation unit outage forecasts for the United States through March 2009 are fairly typical as shown in Table S-1. U.S. total FCC unit outages are also near typical levels. An issue has surfaced in PADD 1, however. This region is expecting a large FCC outage level in February as shown in Table S-2. While FCC units are major gasoline producing units, they also impact distillate production in two ways. First, the FCC unit produces some light cycle oil that contributes to the distillate fuel pool. Second, the crude distillation unit is frequently run at lower rates when the FCC unit is offline because there is no place to store or move the FCC feedstock coming from the crude distillation unit.

Fortunately, PADD 1 has a number of alternative supply options to replace the lost distillate production. Distillate imports into PADD 1 typically vary around 200-250 thousand barrels per day during the winter months, and can surge to 400 or 500 thousand barrels per day in a given month as the need arises. In addition, domestic production capacity outside of PADD 1 is expected to be in excess of demand requirements, as indicated by Figure S-1, which shows potential distillate production relative to production that was needed over the last several years.

In EIA's view, an effort to encourage greater coordination is unlikely to ameliorate the possible impacts of planned FCC outages in PADD 1 this winter. Another alternative, shifting the planned PADD 1 FCC outages to March or April would simply transfer the problem from a loss of distillate to a loss of gasoline. In February, the lost gasoline from the FCC unit is not as critical as it would be in March or April when gasoline production begins to pick up to prepare for summer demand. Perhaps the best preparation to minimize any price impacts of these outages would be for wholesale buyers who normally rely on opportunistic purchasing of supply in addition to their contracts to recognize the potential for fewer opportunistic purchasing opportunities in February, and to arrange for additional contracts. The publication of this report will help to alert this segment of the industry to that situation.